In the world of investing, ROI is king. If you don’t know what ROI is, you’re probably not investing very much. ROI stands for Return on Investment. ROI applies to commercial real estate investment just as it does in any other form of investment. You can calculate the ROI on an investment by taking the net benefits and dividing them by the costs. The common marketing formula is ROI = [(Documented Monetary Benefit – Cost of Marketing) / Cost of Marketing] x 100. That’s basically a fancy way to tell how much money you’re actually making compared to what you’re putting in. This is really the most basic principle of business. You must make more money than you put in. If not, you can’t justify being in business in the first place. Since this formula is so important to the success of every business, how can you improve it? There are several things that you should consider when attempting to improve your ROI in commercial real estate.
One saying that definitely applies here is “Failing to plan = planning to fail.” The planning stage of every business is crucial to its success. If you don’t plan out every step, you will undoubtedly fail. You can just go through your business haphazardly and randomly, but the likelihood of success is greatly decreased. Once you decide on an adequate plan, you have to stick to it. There is some allowance for unpredictability, but you must stick to the plan as a whole. Most business owners never actually sit down and create a business plan that will maximize their cash flow. If they do, they never stick to what is written down for the rest of the process. Planning it out and sticking with it is a very important rule to remember.
The next thing that you must consider is the costs that are going out. One way to increase your ROI is to decrease unnecessary costs. One of the biggest expenses in commercial real estate is the advertising that you engage in. To create a steady source of leads, you must undoubtedly get the word out to the public. In order to do this, advertising is essential. However, you don’t need to sink all your money into high-cost forms of advertising like the yellow pages, television, or movie theater ads. Stick to the basics and remain consistent. A classified ad is a great, inexpensive way to get your message out there. If you engage in direct mail, you may want to rethink your strategy also. Many people use expensive letters that are designed to look great. While these may work, you may want to consider switching to a simple postcard. These are cheaper to mail and generally accepted better by the readers. While these may not seem like big changes to what you’re already doing, they could be the difference in you staying in business or going out of it. Saving thousands of dollars every month will actually net you better results in the long run.
Once you decide on the right marketing avenue, you must perfect your CTA (Call to Action). Without a powerful call to action in your marketing material, your efforts will be worthless. If you don’t get inside the public’s head, you will never experience any type of real success. A bad call to action can actually have the reverse affect from what you desire. A badly worded call to action can create negative word of mouth. Everyone knows that the most powerful form of advertising is word of mouth. Therefore, you do not want to generate negative word of mouth about your business. You will likely never recover from it. You ultimately want to become the little voice inside their head that is coaxing them to take action. If you want them to sell their property, they should want to pick up the phone immediately and call you. Don’t let them think about it. Make them want to call NOW.
Once you’ve launched your perfect marketing campaign, you must stay one step ahead of the competition. Your competition can take valuable dollars off of your bottom line if you don’t take action. The best way to get one step ahead of the competition is through research. You must know what your competitor is going to do before they do it. You must effectively be inside their head. This may prove difficult for real estate investors, as they focus primarily on the real estate portion of the business. For this area of the business, it is usually best to hire a CI or competitive intelligence. These firms will handle all of the research that you need for you. You will pay them to figure out exactly what the competition has been up to. They can track the industry changes and notice any trends that you should be aware of. The key to success in any business is to take note of the trends and stay ahead of them. The market will always follow the trends. If you are ahead of them, the market will always come to you.
No matter what the competition is doing, you should always try to think unconventionally. “Thinking outside the box” can present some major advantages for you. If you do things differently than every other real estate investor, you will attract more clients. Put your CTA on the side of a bus or a restaurant menu. Do something unique. Send a “thank you” gift to all of your customers. This could produce substantial positive word of mouth advertising for you. Maybe you could even sponsor a youth athletic league. The parents of the children may take notice and send some business your way. The options are limitless if you think creatively.
Increasing your ROI is not an exact science. However, if you follow the steps outlined here, you will inevitably do so. Having a high ROI is the key to success in any business. Remain consistent and you too will enjoy a fantastic return on your investment.
